Hungary, IMF to negotiate 15-billion-euro credit line deal

July 15, 2012 - 12:26 AMT

PanARMENIAN.Net - Hungary and the International Monetary Fund (IMF) will take a new stab at a 15-billion-euro credit line deal, starting on Tuesday, July 17, following months of delay due to controversial central bank reforms, AFP reports.

A delegation of representatives from the IMF and European Union (EU) is due to arrive in Budapest Tuesday for negotiations until July 25.

An earlier effort had ended in late December, when EU and IMF experts had walked out on credit talks with Budapest, citing reforms that they feared would limit the central bank's independence. The Hungarian government has since - reluctantly - revised its legislation, which received the European Central Bank's approval in June.

However, conservative Prime Minister Viktor Orban has already warned the IMF-EU talks could go on for some time, predicting the core issues will only be discussed at the end of the summer.

"Those who are expecting quick negotiations will be disappointed," he told Hir TV television last week.

Budapest hopes a 15-billion-euro ($18.2 billion) credit line from the IMF and EU will allow it to borrow on the bond market at better rates than the current ones -- on July 13, the yield on 10-year sovereign bonds reached 7.85 percent.

Investors' confidence in the country dipped as a result of the government's unorthodox economic policies, including the nationalization of pension funds and crisis taxes on specific sectors, like telecommunications and banking.

Hungary also saw its debt downgraded to "junk" status by all three major credit-rating agencies, prompting bond rates to jump, while the national currency, the forint, grew weaker.

Analysts predict the IMF will demand the abolition of crisis taxes, which have hit mostly foreign-owned companies in the banking, retail, telecom and energy sectors.

It could also call for an end to the 16-percent flat income tax, which has created a two-billion-euro hole in Hungary's budget.

These measures were hotly debated, even prompting threats of court action by the European Commission, which deemed they did not conform with EU rules.